Table 2 - Worked example of legal unit annual cost – $
8. Purchasing external legal services
8. Purchasing external legal services
Better practice principles
Match tender requirements to the agency’s identifi ed legal service needs.
Purchase legal services by means of value-for-money arrangements made on the basis of a sound understanding of agency needs and legal services market.
Consider establishing provider panels and packaging legal service needs.
8.1 Requirements and the market
Principal statutory requirements
As with any purchase, an agency must meet certain statutory requirements. Principal requirements relevant to purchasing are as follows:
The chief executive of an agency must manage the affairs of the agency in a way that promotes effi cient, effective and ethical use of the Commonwealth resources for which the chief executive is responsible.
(Section 44 of the Financial Management and Accountability Act 1997.)
An offi cial performing duties in relation to the procurement of services must have regard to the Commonwealth Procurement Guidelines.29 An approver of a proposal to spend public money must be satisfi ed that the proposed expenditure is in accordance with the policies of the Commonwealth and will make effi cient and effective use of the money. (Financial Management and Accountability Regulations 1997, regulations 8 and 9.)
Value for money is the core principle underpinning Australian Government procurement. This requires a comparative analysis of all relevant costs and benefi ts of each procurement proposal throughout the whole procurement cycle, or ‘whole-of-life’ costing. (Commonwealth Procurement Guidelines, section 4.1.) An agency’s legal services purchasing requirements and information should be up to date, consistently described and proactively disseminated. They could be linked to, or included in, other purchasing requirements in the agency’s Chief Executive’s Instructions.
Value for money - knowing the market
As indicated in Chapter 2, the Attorney-General’s Department’s publication Purchasing Legal Services30 provides agencies with general guidance on some of the issues relevant to the acquisition of legal services, particularly through competitive tendering and contracting (CTC) processes. See also ANAO’s better practice guide on selecting suppliers.31
The informed purchaser should have a good knowledge of the legal services market and how it might best meet the agency’s needs. When assessing external provider options, the informed purchaser needs expertise and experience to assess:
external provider behaviour drivers;
which external providers (individuals and/or fi rms) are best placed to meet the agency’s needs for particular legal services32;
29 Department of Finance and Administration, Commonwealth Procurement Guidelines - January 2005 (available at <http://www.fi nance.gov.au/ctc/
commonwealth_procurement_guide.html>). See also Department of Finance and Administration Guidance on the Mandatory Procurement
Procedures - January 2005, Financial Management Guidance No.13 (available at <http://www.fi nance.gov.au/ctc/mandatory_procurement_procedur.html>).
30 Attorney-General’s Department Purchasing Legal Services (available at <http://www.ag.gov.au/agd/WWW/agdhome.nsf/AllDocs/
56FA9DFD542710BDCA2570A50083C1AA?OpenDocument#when>).
31 ANAO Selecting Suppliers: Managing the Risk, Better Practice, October 1998 (available at ANAO’s website <http://www.anao.gov.au/>).
32 Agencies engaging counsel should comply with Legal Services Directions, Appendix D: Directions on Engagement of Counsel.
which form of payment (hourly rates, daily rates, blended rates or fi xed price quotes) provides the best value for money for the agency on each occasion;
the likely cost of a particular service (i.e. whether quoted rates or fi xed price quotes are reasonable);
whether external services are of acceptable quality; and
the impact on the agency of developments in the market, including the movement of key individual providers between fi rms (i.e. from an on-panel fi rm to an off-panel fi rm).
An understanding of these issues will infl uence decisions on purchasing arrangements that best suit the agency’s needs. Many options are available to agencies, including standing or ad hoc arrangements with a panel of providers or with individual providers, or secondments of staff from external providers to supplement or replace internal capability for a short term or for longer periods.
Tendering
After defi ning its legal services needs and identifying the most appropriate model to meet those needs while managing legal service risks (chapters 2, 3 and 6), the agency should consider the development of tender specifi cations and requirements for external legal services.
There are a number of publications that provide guidance on the tendering process. Agencies should ensure that legal tender specifi cations refl ect the expected needs for legal expertise. Tender specifi cations should avoid limiting the range of fi rms eligible to tender, for example by requiring tenderers to have expertise in areas which are not relevant or a presence in all capital or major cities. Unless there is a clear business need for these requirements, such requests for tenders may restrict the fi eld of eligible tenderers unduly to large, national fi rms with potentially high cost structures. At the same time, there is a danger that smaller/mid-size fi rms with a capacity to provide value for money legal services to the agency may be excluded from consideration.
Careful analysis of an agency’s legal service needs (in terms of geographic spread and types of legal services) should precede the preparation of tender documentation for legal services.
The risk of an agency requiring a particular area of legal expertise could be adequately managed by non-exclusive panel arrangements or by having a sub-panel for that area of expertise.
The fi rm’s perspective33
Law fi rms have much in common but each is different in skills, industry knowledge and technology.
Value to fi rm and client is likely to be maximised when the client can match what it needs with the fi rm’s business strategy. A fi rm will seek to assess whether what the client wants is a single transaction, commodity management of similar transactions or a long-term arrangement. A fi rm’s greatest business risk is a lack of workfl ow from a client to whom the fi rm has allocated resources. Predictable workfl ows improve the prospects of lower hourly charge-out rates. A fi rm may see more value in predictable work than in work that is occasionally large but generally unpredictable.
Surveys of law fi rms and the legal services market
A number of specialist consultancy fi rms, professional associations and the media conduct periodic surveys of law fi rms and the legal services market. Reports and results from these surveys can assist agencies in better understanding the environment and issues facing the legal industry and its providers.
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33 Source for this section was The economics of large law fi rms: Impacts on how government purchases, seminar notes by Corrs Chambers Westgarth, lawyers, 2004.
8. Purchasing external legal services 35
8.2 Panels and packaging
Provider panels
A panel of legal service providers, established by value-for-money assessment of competitive tenders, gives agency staff ready access to a range of external expertise. Standing offer panels are a useful way to ensure an agency can meet its ongoing needs for legal services.
Panel duration is often for around three years with options for extension. The reason for this is that, once the panel is set up, retesting the market annually is unlikely to bring benefi ts that would outweigh the time, cost and resources of testing the market again.
If its volume of legal work justifi es having a large panel, the agency should consider carefully the most appropriate approach to allocating the work among the panel fi rms, having regard to the Commonwealth Procurement Guidelines (including requirements regarding panels) and associated guidance.34 There are a number of valid approaches, including allocating work based on particular areas of expertise, and sharing similar work among panel fi rms to ensure that the agency does not become overly reliant on a small number of fi rms.
By disclosing statistics to its legal panel fi rms on their average costs and completion times, an agency can promote competition among the fi rms. This can assist in reducing costs for the agency and raising the standard of each fi rm’s performance. At the same time, panel fi rms are aware that they may have their proportion of work reduced if the agency can obtain better value for money elsewhere.
Note, however, that to establish a panel of numerous providers of general legal services may lead to disappointed expectations by the panellists if the agency has little call for their services. Establishing a large panel may also simply postpone diffi cult decisions in assessing tenders to a time when the agency needs to select a particular fi rm quickly for an immediate legal task. Establishing a large under-utilised panel may also expose the agency to claims of unreasonable commercial behaviour.
Case study - national and regional panels
One large agency has found it effective to establish different types of panel arrangements for different services, in addition to its in-house service provision. In its debt litigation area, where there is high volume work focused in regional centres closest to debtors, it has a panel made up of one national provider and nine regional providers. The agency requires providers to provide routine services for a fi xed fee up to a certain number of court ‘return dates’ which experience indicates is suffi cient to complete matters in most cases. The agency recognises, however, that providers have their own commercial realities, so the arrangement allows for work beyond the fi xed threshold to be charged at a different rate.
For its commercial advice panel, where regional services are less critical, the agency has a panel of a small number of national providers.
Another relevant distinction is in the way that external providers deal with internal ‘clients’. For its high-volume low-complexity debt recovery work, the agency’s in-house legal branch effects referrals from business teams to external providers who then deal direct with collections case offi cers. For commercial and employment law services, the in-house legal offi cer effectively acts as client of the external provider.
Packaging legal services requirements
It may be appropriate to ‘package’ the agency’s legal services requirements. For instance, does the agency require discrete bundles of services that could be purchased differently from ad hoc external services? Does
34 Department of Finance and Administration, Commonwealth Procurement Guidelines - January 2005. See also Appendix B: Panels in Department of Finance and Administration Guidance on the Mandatory Procurement Procedures - January 2005, Financial Management Guidance No.13.
the agency require regular services that could best be provided by external providers for a fi xed fee? How might the agency gain advantages from its negotiating strength if it needs high-volume services or signifi cant services or needs to engage in lengthy litigation?
When making decisions about how to ‘package’ that agency’s legal services requirements, and which provider is best placed to provide services for the agency, the informed purchaser may take into account factors such as:
the availability of specialist expertise;
the provider’s depth of understanding of the agency’s business;
the provider’s ability to meet required deadlines;
relative full costs of providers;
confl ict of interest issues;
nature of the matter (e.g. if high-level, large or complex);
expected volume of various categories of legal work;
key stakeholder comfort level with particular providers; and compliance with government policy.
Case study - advice on new law
Several years ago an agency was faced with administering new legislation in a contentious area of government involvement in business activity. It decided to obtain early advice on this untested, specialist area of law. Anticipating litigation on the new law, the agency engaged senior counsel to prepare advice on the Commonwealth’s position and the options that would be open to it in the expected court action. The agency’s legal expert worked closely with senior counsel in preparing the advice.
This has proved to be a good investment for the agency. Although expensive and time-consuming to prepare, the extensive opinion provided by senior counsel has served the agency well as the basis for advising the Government and briefi ng counsel in the various court actions which subsequently occurred.
The in-house legal unit developed expertise in this area of law that was not available off-the-shelf in law fi rms.
The original advice, and a pro-active approach since then, has enabled the agency’s legal unit to remain at the forefront of this area of law. This gives it an advantage in choosing private legal service providers to assist the agency in dealing with the issues which continue to arise.
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